The Paradox Of China’s Producer Services Development And Its Mechanism

Because of the bias understanding about China’s economic servitization paradox and the explanation are all from Exogenous factors, This paper measures the long-term law and stage characteristics of the proportion of China’s service industry by panel data from1952to2010with the method of Eichengreen and Gupta (2009), and makes new interpretation of the so-called China’s service industry development paradox. After interpreting the service development paradox as producer services development paradox, this paper builds two theoretical models of industry interaction between manufacturing and producer services, based on Markusen (1989), Francois (1990a), Marrewijk (1997) and Huang (2011), and gets some endogenous demand factors which influence the development of producer services in industry interaction. Combined with the results of the theoretical model and the characteristics of China’s economic development, we make empirical test on the factors which influence the development of China’s producer services from three angles, industrial structure, trade structure, and firm heterogeneity, and give some reasonable explanations about the Chinese producer services development Paradox. The basic conclusions are as follows:(1) At macro-national level, changes in the proportion of China’s service sector output is indeed contrary to the servitization of world economy; but at the regional level, the ratio of service sector output to GDP per capita is in line with the universal law of the service sector growth. Most parts of China are still in the first wave of the traditional service-based stage, only a few areas go into the second wave of modern service-oriented stage. Based on the results above, the so-called "China’s services development paradox" is essentially "China’s producer services development paradox", that is to say, with the rapid growth of the national economy and industrialization, the proportion of producer services is not increasing as prospected, but stagnant or even declining, which is contrary to the development law of services industry in the period of industrialization of Western countries.(2) The industry interaction models built from two angles of increasing returns to scale and specialization remuneration increments demonstrate that, in the interaction with the manufacturing sector, the development of producer services is influenced by the share of services input in the manufacturing sector, the scale of manufacturing enterprises, the level of national income, etc. Although these factors are all belong to demand factors which affect the development of producer services, but the specific mechanism of its influence is not the same. Based on the above findings and the characteristics of China’s economic development, we make reasonable explanation on China’s economic servitization paradox from the perspectives of industrial structure, trade structure and firm heterogeneity.(3) The backwardness of manufacturing and the traditional organizational structure of manufacturing enterprises hinders its demand for producer services, which leads to the fact that the vigorous development of China’s manufacturing industry can’t bring along the development of producer services effectively; The service industry’s promotion on the development of producer services is far greater than the manufacturing industry, and "self-reinforcing" affect does exist. Corporate ownership structure and business objectives affect the relationship between firm size and development of producer services; China’s export-oriented economy characterized by OEM production and processing trade hinders the industry linkage between manufacturing and producer services; Similar to consumer services, producer services development also has the "income effect"(4) The effects of foreign trade structure on producer services are mainly in the area of indirect ways, through importing large quantities of capital-intensive equipment to hinder capital-intensive manufacturing demand for producer services, and exports of general trade and processing trade have promoted the development of producer services through expanding the scope of the final product market; Although processing trade exports have promoted the development of producer services as a group, but have hindered the development of the distribution industry; Compared to the central and western regions, the influence of trade structure of China’s processing trade is more significant in the eastern region.(5) Chinese industrial enterprises scale has an inverted "U"-shaped relationship with their produces services input and services externalization, and their current relationships are both in a positive stage; Compared with the private and foreign-funded enterprises, the state-owned enterprises have a higher input level of producer services, but their proportions of service externalization are lower, which is related with too many layers of management and the vertical integration of organizational structure in the state-owned enterprises; The labor productivity of industrial enterprises is negative related with their high level producer service inputs, which is caused by state-owned enterprises’higher level of producer service inputs and their lower level of labor productivity; In addition, the enterprise’s established life and regional level of marketization has positive impact on enterprise’s service inputs and their services externalization.Based on the above results, the paper concludes with policy recommendations from four perspectives.